Advertising Format and Content Provision on Revenue-Sharing Content Platforms

The digital content market has grown dramatically in recent years. Many platforms (e.g., YouTube, Twitch, and Instagram) show ads when consumers watch the content on their platforms, and they share ad revenue with content creators to incentivize them to create and share content. These platforms often adopt either uniform advertising (UA) (i.e., they display the same number of ads irrespective of content quality) or differentiated advertising (DA) (i.e., they display the number of ads based on content quality). This paper shows that, regardless of the ad format, an increase in creator substitutability can increase the profits of the platform and the content creators and improve the consumer surplus. Moreover, the equilibrium ad revenue-sharing rate, content quality, and the number of ads shown for each content will be lower under DA than under UA. The platform's profit and the consumer surplus are also lower under DA than under UA. However, depending on the level of creator substitutability, the creators' profits can be higher or lower under UA. We have also analyzed an emerging ad format in which the platform allows content creators themselves to decide the number of ads on their content. Interestingly, we show that this new ad format can make the platform, the content creators, and the consumers worse off.